Famed U.S.-based bond investor Bill Gross criticized the Federal Reserve anew for its long-running zero and negative interest rates, which he claimed would not able to provide an “easing cushion” in the event of a major recession.
Gross—who runs the Janus Global Unconstrained Bond Fund—noted that the Fed’s current model promotes incentives for saving rather than smart spending, and that the $11 trillion in negative-yield bonds are major liabilities rather than assets, Reuters reported.
“Capitalism, almost commonsensically, cannot function well at the zero bound or with a minus sign as a yield,” Gross wrote in his latest Investment Outlook released on Wednesday (August 31).
The financial manager singled out Fed chair Janet Yellen as the leading architect of the “market manipulation” that is preventing the “creative destruction” of “zombie corporations, while placing the global economic system at grave risk.
“With Yellen, there is no right or left hand – no ‘on the one hand but then on the other’ – there are only decades of old orthodoxy that follows the tarnished golden rule of lowering interest rates to elevate asset prices, which in turn could (should) trickle down to the real economy,” Gross said.
“You and your contemporaries have flipped $11 trillion from the left side to the right side of the global balance sheet.”
Gross warned that such short-sightedness on the part of the Fed will only sacrifice long-term stability for “the hopes that your ancient model renormalizes the economy over the next few years. It likely will not.”
“This watch is ticking because of high global debt and out-of-date monetary/fiscal policies that hurt rather than heal real economies. Sooner rather than later, Yellen’s smooth shot from the fairway will find the deep rough.”
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